The operator, Norma, introduces the conference call and hands it over to Linsley Carruth, T. Rowe Price's Director of Investor Relations. The call will last approximately 45 minutes, with CEO and President Rob Sharps and CFO Jen Dardis discussing the company's results for 15 minutes before opening it up to questions. Eric Veiel, T. Rowe Price's head of Global Equity, will also be present for the Q&A portion. The speakers remind listeners to refer to the forward-looking statements and non-GAAP financial measures provided in the supplemental materials. Rob Sharps thanks everyone for joining and discusses the company's solid performance and progress on strategic initiatives and cost savings.

The company's net flows have not improved and are not expected to for the rest of the year, but they anticipate a recovery in 2024. Despite market volatility, the company's investment performance remains strong, with many US equity products outperforming their peers. The company also launched new active ETFs and their capital appreciation fund continues to outperform. Their target date products also had a strong quarter.

In the third quarter, T. Rowe Price's flagship retirement funds performed well, with a majority of their mutual funds outperforming their peers. Alternative strategies also had strong results, particularly in private market strategies. However, the company continues to see net outflows, with US large cap equity being the main contributor. The company is proactively managing expenses and launched a joint investment offering with OHA. They are focused on delivering alternative investments to the wealth management channel.

The company OCredit launched with $1.5 billion of investable capital and has seen significant growth in its ETF franchise. They have also expanded their global headquarters and are focused on delivering strong investment performance and excellent service for clients. The company's adjusted earnings per share for Q3 2023 increased due to higher investment advisory revenues and carried interest-related income.

In the third quarter, the company saw a decline in markets, resulting in a decrease in end-of-period AUM. However, their average AUM was higher compared to the previous quarter, leading to higher investment advisory revenues. The company experienced net outflows, mainly from their US large cap growth equity strategies. But they also had inflows in other asset classes and their Asia-Pacific business. The company also reopened two strategies and saw net inflows in other products. Their adjusted net revenues were nearly $1.7 billion, with a decrease in the effective fee rate due to timing and a shift towards lower fee asset classes.

Q3 adjusted net revenues included over $90 million in accrued carried interest related revenue, which is higher than previous quarters and will likely continue to vary quarter-to-quarter. Adjusted operating expenses were up slightly from previous quarters due to severance costs and higher carried interest expenses, partially offset by a non-recurring benefit in G&A. For the full year 2023, the company is narrowing its guidance range for adjusted operating expenses, excluding carried interest compensation, to be 2% to 4% over the comparable amount in 2022. The company expects higher expenses in Q4 due to seasonal and timing factors, but they have been focused on managing expense growth and driving efficiency to continue investing in strategic initiatives for future growth.

The company has been reviewing its real estate usage in light of its hybrid working environment and has decided to consolidate its associates at one location and reduce space in another location. This will not affect the company's workforce strategy. The company has also focused on improving its business, data, and technology architecture to drive efficiency. Over the last 12 months, the company has removed or reallocated over $200 million in operating expenses and expects adjusted operating expenses to grow in the low single digits by 2024. The company has also repurchased shares and maintained a recurring dividend for its stockholders while maintaining ample liquidity for potential M&A.

The company is confident that they will see improved flows in 2024 due to their strategic priorities and cost reduction efforts. They expect elevated outflows in November and December, but have already seen some improvement in certain channels. Despite a challenging industry backdrop, they believe they will see lower outflows next year.

Rob and Eric were asked about the improvement in flows in the third quarter. They pointed to specific areas such as positive flows in retirement date funds, fixed income, multi-asset, and alternatives. They also mentioned that ETF sales were the best they've ever been, but they don't expect it to be the main driver of performance or improvement in flows. They believe that a broadening of performance in the US equity market, longer term performance numbers, and strategic initiatives will contribute to improved flows in the future. However, they don't think that OCredit or ETFs will be the main driver of improved flows. They expect to see improvement in core asset classes and channels for 2024 to be a better year for flows than 2023. The next question was about redemptions and their impact on flows.

The speaker is discussing the strong performance of their key equity flagship funds, which has resulted in improved flows and client discussions. They attribute this success to the strong performance of their underlying research platform. However, they recognize that they must continue to deliver strong performance over longer time periods to see significant improvement in their three and five-year numbers.

During a conference call, a question was asked about recent sub-advisory losses and the potential impact on the company's assets under management (AUM). The CEO, Robert Sharps, responded by stating that the sub-advisory business is broad and includes opportunities in the wealth and variable annuity channels. The variable annuity sub-advisory business is likely to come under more pressure, but it only makes up a small percentage of the overall AUM. Sharps also mentioned that sub-advisory is a good business for the company and they are committed to it. He added that they may be able to consolidate market share in the future, but this is dependent on providing excellent service and performance in the VA channel. Sharps also noted that the company has navigated challenges in the VA channel for a long time.

The speaker discusses the incorporation of ESG risks into the investment process and assures that it is not affected by political issues. They mention the growth of demand for ESG products globally and state that they have the capabilities to meet client needs in this area.

The speaker, Eric Veiel, discusses the success of their active ETF offerings and how they have been marketing them. They have a thoughtful approach and have targeted channels where there is potential for uptake, such as the US wealth channel and the RIA channels. They have also seen traction with larger broker/dealers. The TCAF strategy and portfolio manager, David Drew, are well known.

The company has been successful in accelerating placements with a specific strategy and supporting it with targeted marketing campaigns and dedicated sales efforts. They believe this business will become very large and important in the next few years and are confident in their approach. The company sees a big opportunity for active ETFs in the wealth channel and plans to use their multi-asset capabilities to incorporate ETFs into models. They also see potential for further growth in this area and are encouraged by their progress so far. The company believes that ETFs can be another tool to address client needs and fill gaps in their product offerings, similar to their approach with ESG.

The speaker thanks the person for taking their question and asks for clarification on the 4Q expenses. They mention a 2% to 4% range for the full year and mention a one-time recovery of prior period costs of $20 million. They also mention an increase in professional fees and stock-based compensation, which create a pop every fourth quarter. The speaker asks if these expenses will carry over into the first quarter of 2024.

The speaker is discussing the company's efforts to increase their presence in the retail SMA market. They currently offer over 20% of their investment strategies in retail SMA and have seen some traction in this area. However, it is a slow process and they are facing competition from established manager rosters. The company sees this as an important part of their US wealth strategy and are working to make their products available in various vehicles to cater to different client preferences. There has not been a significant impact on flows yet, but they are focused on expanding their presence in this market.

The company has had specific successes and launches this year, including a muni SMA for a distribution partner and two additional equity SMAs. They have disclosed an AUA number of around $10 billion, which includes not only retail SMAs but also glide path advisory and custom target date funds. The company offers both a higher and lower equity glide path for their flagship and target series, and they have the ability to make tactical allocations to asset classes and building blocks.

The speaker mentions that they have been underweight equities this year and have a flexible asset allocation committee. They have also introduced a hedged equity component and have had strong performance in their target date series. They believe a high equity component is important for longer dated vintages, but there are other ways to drive value. Gross sales for the target date franchise were up 10% year-over-year and they anticipate potential opportunities from strong performance and year-end dynamics with plan sponsors.

Robert Sharps, from T. Rowe Price, believes that their flagship retirement date funds are the best in the business. They have a strong portfolio design and offer a range of options for fee-sensitive plans. They have invested in making their fees competitive and have seen record flows in their target date franchise. While there may be some planned dynamics around year-end, they are confident in their value proposition and momentum.

In this paragraph, Jen Dardis discusses the success of their retirement date franchise and the positive flows they are seeing from new plan wins. The operator asks for more information and Finian O'Shea asks about the progress with distribution partners and the potential for additional direct lending vehicles in the retail market. Robert Sharps explains that they have just reached effectiveness and are focusing on building relationships with wealth platforms through their existing relationships with brokers and advisers.

The speaker is discussing the success of their company's investments and strategic initiatives. They are pleased with their performance and are focused on executing cost-saving efforts.

The company is currently experiencing net outflows, but they are hopeful that the situation will improve in 2024. The CEO expresses confidence in their plan to return to organic growth and thanks the hard work and dedication of their associates. The conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.